Business Directories

India stocks dive; rupee hits record low

Mumbai, August 16, 2013

India's stock markets saw one of the biggest falls in recent years as blue chips were hit across the board on fears US stimulus tapering would trigger foreign selling and the rupee hit a record low today.

The Sensex plunged 3.97 percent, or 769.41 points, to end at 18,598.18, also falling 1 percent for the week, marking its fourth consecutive weekly fall. The Nifty dived 4.08 percent, or 234.45 points, to end at 5,507.85, marking its biggest single daily fall since September 22, 2011.

The partially convertible rupee fell to an all-time low of 62.03 to the dollar as trading began on Friday. It ended the session at 61.65, weaker than Wednesday's close of 61.43/44. Markets were closed on Thursday for a holiday.

The Reserve Bank of India's measures late on Wednesday to restrict how much its citizens and companies can invest abroad also raised fears of outright capital controls that would further undermine the confidence of foreign investors, hitting the rupee.

The volatility index which measures the cost of protection via options and is seen by some investors as a "fear" gauge gained 26.4 percent, marking its biggest single day percentage gain since June 17, 2009.

The outlook remains weak as Indian shares marked their fourth consecutive weekly fall, totalling a decline of 7.7 percent, as the rupee has tumbled despite various measures undertaken to prop up the currency.

"FIIs (foreign institutional investors) may pull out further on continued concerns over Fed's potential tapering and as the rupee continues to make record lows," said Sachin Shah, a fund manager at Emkay Investment Managers Ltd.

Although valuation have started looking attractive, Shah added.

Blue chips fell across the board. HDFC Bank slipped 5.4 percent, while Reliance Industries tumbled 4.4 percent. Axis Bank slumped 8.8 percent after MSCI said it would exclude the bank from its standard and large-cap indexes.

India's Finance minister P Chidambaram tried to talk up the rupee on Friday after it plumbed another record low on concerns the Reserve Bank of India's (RBI) latest measures to defend the currency could be a step towards outright capital controls.

Traders said the RBI was forced to step in to prop up the rupee as measures from the central bank late on Wednesday restricting how much Indian citizens and companies can invest abroad were seen as yet another roll of the dice that is undermining investor confidence.

Concerns that policymakers were losing control over the currency spread to the stock market, which dropped 4 percent, its biggest one-day decline in nearly two years.

Chidambaram told reporters that global developments, including the dollar spike after US jobless claims data on Thursday, were behind the rupee fall.

"I have no doubt in my mind when calm is restored in the market, people will begin to understand that Indian market indicators must basically reflect Indian market conditions," Chidambaram said.

"I think this is time for calm. This is time for reflection."

Indian policymakers have cobbled together a slew of steps over the past month in a bid to halt the rupee's slide, including the central bank's extraordinary steps on July 15 to drain cash from the system and raise short-term interest rates in an economy already growing at a decade low.

Yet none of the steps or the rhetoric so far have convinced investors that India can attract overseas investments, which is seen as essential in narrowing a record high current account deficit that is the biggest source of the rupee weakness.

The approach is instead beginning to test the patience of foreign investors, just when emerging markets such as India are seen as particularly vulnerable to reduced cash inflows once the expected tapering of monetary stimulus by the US Federal Reserve begins.

"They're coming across as a bit panicky. That's what is damaging sentiment for investors," said Jonathan Schiessl, a fund manager at Ashburton Investments in Jersey, referring to the RBI's actions to defend the rupee.

"Unless things improve, we will probably in all likelihood be withdrawing some weightings from our India positions." - Reuters